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PALL > SEC Filings for PALL > Form 10-Q on 11-Aug-2014All Recent SEC Filings

Show all filings for ETFS PALLADIUM TRUST

Form 10-Q for ETFS PALLADIUM TRUST


11-Aug-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This information should be read in conjunction with the unaudited condensed financial statements and notes to the unaudited condensed financial statements included in Item 1 of Part 1 of this Form 10-Q. The discussion and analysis that follows may contain forward-looking statements with respect to the Trust's financial conditions, operations, future performance and business. These statements can be identified by the use of the words "may", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" or similar words and phrases. These statements are based upon certain assumptions and analyses the Sponsor has made based on its perception of historical trends, current conditions and expected future developments. Neither the Trust nor the Sponsor is under a duty to update any of the forward looking statements, to conform such statements to actual results or to reflect a change in management's expectations or predictions.

Introduction

The Trust is a common law trust, formed under the laws of the state of New York on December 30, 2009. The Trust is not managed like a corporation or an active investment vehicle. It does not have any officers, directors, or employees and is administered by the Trustee pursuant to the Trust Agreement. The Trust is not registered as an investment company under the Investment Company Act of 1940 and is not required to register under such act. It will not hold or trade in commodity futures contracts, nor is it a commodity pool, or subject to regulation as a commodity pool operator or a commodity trading adviser in connection with issuing Shares.

The Trust holds palladium and is expected to issue Baskets in exchange for deposits of palladium, and to distribute palladium in connection with redemptions of Baskets. Shares issued by the Trust represent units of undivided beneficial interest in and ownership of the Trust. The investment objective of the Trust is for the Shares to reflect the performance of the price of palladium, less the Trust's expenses. The Sponsor believes that, for many investors, the Shares will represent a cost effective investment relative to traditional means of investing in palladium.

The Trust issues and redeems Shares only with Authorized Participants in exchange for palladium, only in aggregations of 50,000 or integral multiples thereof. A list of current Authorized Participants is available from the Sponsor or the Trustee.

Shares of the Trust trade on the New York Stock Exchange (the "NYSE") Arca under the symbol "PALL".

Valuation of Palladium and Computation of Net Asset Value

As of the London PM Fix on each day that the NYSE Arca is open for regular trading or as soon as practicable after 4:00 p.m. New York time on such day, (the "Evaluation Time") the Trustee values the palladium held by the Trust and determines both the ANAV and the NAV of the Trust.

At the Evaluation Time, the Trustee values the Trust's palladium on the basis of that day's London PM Fix, or, if no London PM Fix is made on such day or has not been announced by the Evaluation Time, the next most recent London palladium price (AM or PM) determined prior to the Evaluation Time is used, unless the Sponsor determines that such price is inappropriate as a basis for valuation. In the case this determination is made, the Sponsor will identify an alternative basis for such evaluation to be used by the Trustee.

Once the value of the palladium held by the Trust has been determined, the Trustee subtracts all estimated accrued but unpaid fees and other liabilities of the Trust from the total value of the palladium and all other assets of the Trust. The resulting figure is the ANAV of the Trust. The ANAV is used to compute the Sponsor's Fee.

The Trustee then subtracts from the ANAV the amount of Sponsor's Fees computed for such day to determine the net asset value ("NAV") of the Trust. The Trustee also determines the NAV per Share by dividing the NAV of the Trust by the number of Shares outstanding as of the close of trading on the NYSE Arca.


ETFS PALLADIUM TRUST

The Quarter Ended June 30, 2014

Effective January 1, 2014, the Trust is deemed to be an investment company under generally accepted accounting principles. Accordingly, the Trust adopted the specialized accounting for an investment company as prescribed in Topic 946, Investment Companies. Refer to Note 2.1 of the unaudited condensed financial statements for additional information.

The NAV of the Trust is obtained by subtracting the Trust's liabilities on any day from the value of the palladium owned and receivable by the Trust on that day; the NAV per Share is obtained by dividing the NAV of the Trust on a given day by the number of Shares outstanding on that day.

The Trust's NAV increased from $500,581,237 at March 31, 2014 to $529,909,345 at June 30, 2014, a 5.86% increase for the quarter. The increase in the Trust's NAV resulted primarily from an increase in the price per ounce of palladium, which rose 8.48% from $778.00 at March 31, 2014 to $844.00 at June 30, 2014.

There was a decrease in outstanding Shares, which fell from 6,600,000 Shares at March 31, 2014 to 6,450,000 Shares at June 30, 2014, a result of 50,000 Shares (1 Basket) being created and 200,000 Shares (4 Baskets) being redeemed during the quarter.

NAV per Share increased 8.32% from $75.85 at March 31, 2014 to $82.16 at June 30, 2014. The Trust's NAV per Share rose slightly less than the price per ounce of palladium on a percentage basis due to Sponsor's Fees, which were $771,352 for the quarter, or 0.60% of the Trust's assets on an annualized basis.

The NAV per Share of $83.35 at June 11, 2014 was the highest during the quarter, compared with a low of $75.54 at April 9, 2014.

Change in net assets from operations for the quarter ended June 30, 2014 was $40,694,755, resulting from a realized gain of $141,182 on the transfer of palladium to pay expenses, a realized gain of $2,742,066 on palladium distributed for the redemption of Shares and a change in unrealized gain on investment in palladium of $38,582,859, offset by Sponsor's Fees of $771,352. Other than the Sponsor's Fee, the Trust had no expenses during the quarter ended June 30, 2014.

Prior to the adoption of investment company accounting, the Trust recorded its investment in palladium at the lower of cost or market value. Under the previous presentation and accounting policies, the net gain from operations for the quarter ended June 30, 2013 was $4,853,637, resulting from a net gain of $104,676 on the transfer of palladium to pay expenses and a net gain of $5,553,913 on palladium distributed for the redemption of Shares, offset by Sponsor's Fees of $804,952. Other than the Sponsor's Fee, the Trust had no expenses during the quarter ended June 30, 2013.

The decrease in the net gain on palladium distributed for the redemption of Shares is attributable to movements in the fair value of palladium, in addition to a decreased number of redemptions which occured in the quarter ended June 30, 2014 compared to the quarter ended June 30, 2013. The unrealized gain on investment in palladium in the quarter ended June 30, 2014 has increased as a result of the adoption of investment company accounting and an increase in the price of palladium. Sponsor's Fees are calculated as a percentage of assets. The Sponsor's Fee in the quarter ended June 30, 2014 was lower than the fee for the quarter ended June 30, 2013, as the average assets were lower in June 30, 2014 compared to June 30, 2013.


The Six Months Ended June 30, 2014

The Trust's NAV increased from $510,214,088 at December 31, 2013 to $529,909,345 at June 30, 2014, a 3.86% increase for the period. The increase in the Trust's NAV resulted primarily from an increase in the price per ounce of palladium, which rose 18.71% from $711.00 at December 31, 2013 to $844.00 at June 30, 2014.

There was a decrease in outstanding Shares, which fell from 7,350,000 Shares at December 31, 2013 to 6,450,000 Shares at June 30, 2014, a result of 200,000 Shares 4 Baskets) being created and 1,100,000 Shares (22 Baskets) being redeemed during the period.

NAV per Share increased 18.35% from $69.42 at December 31, 2013 to $82.16 at June 30, 2014. The Trust's NAV per Share rose slightly less than the price per ounce of palladium on a percentage basis due to Sponsor's Fees, which were $1,524,910 for the period, or 0.60% of the Trust's assets on an annualized basis.

The NAV per Share of $83.35 at June 11, 2014 was the highest during the period, compared with a low of $68.50 at February 4, 2014.

Change in net assets arising from the change in accounting principle (refer to Note 2.1 of the unaudited condensed financial statements) as of January 1, 2014 was $46,877,007. Change in net assets from operations for the period ended June 30, 2014 was $84,310,529, resulting from a realized gain of $223,450 on the transfer of palladium to pay expenses, a realized gain of $10,737,150 on palladium distributed for the redemption of Shares and a change in unrealized gain on investment in palladium of $74,874,839, offset by Sponsor's Fees of $1,524,910. Other than the Sponsor's Fee, the Trust had no expenses during the period ended June 30, 2014.

Prior to the adoption of investment company accounting, the Trust recorded its investment in palladium at the lower of cost or market value. Under the previous presentation and accounting policies, the net gain from operations for the period ended June 30, 2013 was $4,761,182, resulting from a net gain of $201,173 on the transfer of palladium to pay expenses and a net gain of $6,186,059 on palladium distributed for the redemption of Shares, offset by Sponsor's Fees of $1,626,050. Other than the Sponsor's Fee, the Trust had no expenses during the period ended June 30, 2013.

The increase in the net gain on palladium distributed for the redemption of Shares is attributable to movements in the fair value of palladium, in addition to an increased number of redemptions which occured in the period ended June 30, 2014 compared to the period ended June 30, 2013. The unrealized gain on investment in palladium in the period ended June 30, 2014 has increased as a result of the adoption of investment company accounting and an increase in the price of palladium. Sponsor's Fees are calculated as a percentage of assets. The Sponsor's Fee in the period ended June 30, 2014 was lower than the fee for the period ended June 30, 2013, as the average assets were lower in June 30, 2014 compared to June 30, 2013.


ETFS PALLADIUM TRUST

Liquidity & Capital Resources

The Trust is not aware of any trends, demands, commitments, events or uncertainties that are reasonably likely to result in material changes to its liquidity needs. In exchange for the Sponsor's Fee, the Sponsor has agreed to assume most of the expenses incurred by the Trust. As a result, the only ordinary expense of the Trust during the period covered by this report was the Sponsor's Fee.

The Trustee will, at the direction of the Sponsor or in its own discretion, sell the Trust's palladium as necessary to pay the Trust's expenses not otherwise assumed by the Sponsor. The Trustee will not sell palladium to pay the Sponsor's Fee but will pay the Sponsor's Fee through in-kind transfers of palladium to the Sponsor. At June 30, 2014 the Trust did not have any cash balances.

Off-Balance Sheet Arrangements

The Trust has no off-balance sheet arrangements.

Critical Accounting Policies

The unaudited condensed financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed financial statements relies on estimates and assumptions that impact the Trust's financial position and results of operations. These estimates and assumptions affect the Trust's application of accounting policies. In addition, please refer to Note 2 to the unaudited condensed financial statements for further discussion of accounting policies.

Effective January 1, 2014, the Trust has adopted the provisions of Topic 946, Investment Companies, and follows specialized accounting. Other than a change in the presentation of the Trust's financial statements, the most significant change is that the Trust must, from January 1, 2014, record its investment in palladium at fair value. Prior to January 1, 2014 the investment in palladium was recorded at the lower of cost and market value. As a result of this change, the Trust expects that there will be fluctuations in the value of investments based on changes in the price of palladium.

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